Re: Scalping

Date: Tue, 03 Jun 2003 13:21:41 -0400
Newsgroups: sci.econ
Size: 6,484 bytes

On Tue, 03 Jun 2003 10:43:52 -0400, Jonah Thomas <email-address-deleted>
wrote:
>Darren wrote:
>> Jonah Thomas wrote:
>
>>>OK, let's look at it. I'll start with an artificial example and then
>>>generalise.
>
>>>Imagine that there's a theater where there are 100 seats, and by
>>>coincidence there are 100 people who very much want to go to the show.
At the ticket booth price.
Obviously, at a lower price more people will want to see the show, and
at a higher price fewer will.
So the match between 100 tickets offered and 100 wanted isn't
"coincidence", it is supply and demand.
>>>With no scalpers, those people all get their tickets at the ticket-booth
>>>price. Nobody has any problem with that.
>>>Now try it with a scalper. When the ticket-booth first opens, he comes
>>>by and buys 80 tickets. Then the first 20 customers who come by to get
>>>their tickets get theirs at the ticket-booth price. Then the other 80
>>>have to buy from him.
Extremely unrealistic, unless the show producer is providing tickets
to the "scalper" for a share in the profits, to benefit from the
scalpers' superior expertise at price discrimination. Which certainly
does occur.
But if you are talking of an illegal scalper towards whom the show
producer is hostile, say 10% of the tickets -- oh, heck, 20% for
argument's sake -- with the scalper buying a good portion of those
tickets from people who bought them at the box office, and paying
premium to those people, of course.
>>> He charges whatever the market will bear.
>> And why is "whatever the market will bear" higher than the face price? Many
>> of those 80 people might say "twice the face price? Screw you! I'm going
>> home". And theeeeeeeeeeeen what does the scalper do?
It's a matter of price discrimination. A very few people will pay far
more than the ticket-office price for tickets. A few more will pay a
little less than that but still a lot more than the ticket office
price ... down to 100 people willing to pay the ticket office price.
The scalper makes money by having developed methods to distinguish the
maximum price that different people will be willing to pay, and
selling tickets to them accordingly.
Just like airlines have developed methods to distinguish between
business travelers who will pay any price to get to a destination and
mom-and-pop vacationers who watch every dollar, and charge them
accordingly -- so no two flyers pay the same fare...
And just like publishers charge $20 more for hardcover books than
paperbacks --- both kinds of books have the same words on the same
paper and a hard cover doesn't cost $20, but different people buy
them.....
And just like Ivy League universities have methods for distinguishing
the amounts different parents can afford to pay (by setting a $50,000
annual "base" charge for tuition-and-board, then looking at the
parents' tax returns and financial statements to see how much
"financial aid" they should get) so their students all pay different
amounts for the same education....
Price discrimination is routine in this world. But some organizations
are better at it than others -- and commercial scalpers are better at
it than (most) theater owners.
>> Remember, the scalper is exposed too. He MUST sell ALL of his tickets or he
>> might take a bath. He is motivated to be flexible with his prices, especially
>> when showtime approaches.
>
>If he doesn't think he can sell all the tickets at a price he likes, he
>can give some of them to people who've done him favors, or people who
>might do him favors in the future, or friends. He should of course
>choose people who won't go into competition with him. I have gotten
>tickets to two dinner theaters and a talk about geophysics this way.
The commercial scalper makes his money by price discrimination. Since
he pays full ticket-office price (or *more*) for each ticket and has
his own business costs to cover, he must sell each ticket for more
than ticket-office price or take a loss on each ticket.
As a price discriminator he is betting that he can sell *each and
every* ticket for enough of a mark up to cover its price plus his
costs and give a sufficient profit. As a business person he has no
desire to take a loss on anything.
The scalper has no reason to buy one ticket more than his business
experience tells him he can sell at a sufficient markup -- any more
than a car dealer will order more cars than it expects to sell for a
profit, or a grocer will order more bread than it expects to sell for
a profit.
Nobody forces the commercial scalper to buy tickets, and he doesn't
make any money by losing money on them. So he's not going to be happy
about giving them away any more than a car dealer would be giving away
excess cars or a grocer would be giving away excess groceries.
But in the unhappy case where the commercial scalper will be forced to
take a loss on a ticket, any price he can get over $0 will be better
than a 100% loss.
The only way a commercial scalper benefits by "giving away" tickets is
if he expects to get something in return for the gift, in which case
it is not a gift but a sale for other than cash, or an investment in
marketing, or some such.
>
>>>In this situation the scalper gets his money entirely from cornering the
>>>market.
This is not true at all -- nothing like a market corner is involved.
To possess a market corner is to own *all* of a commodity that is
available at *any* price. But every single person who owns a ticket to
an event is an independent owner of that commodity -- and every single
one is a potential scalper.
When I go to a Jets game and people are standing out on the approach
road to the stadium asking for tickets, 60,000 potential scalpers pass
them by, literally. No "corner" there! And if I sell my ticket for
double what I paid for it, it sure ain't because I have a corner on
Jets tickets!
And as for Broadway shows there is even less than a corner, if
anything. Tomorrow's show is a close substitute for tonight's. And
there are plenty of other shows on and off Broadway to choose from,
competing with each other, close substitutes for each other. And
there are all those tickets at Duffy Square.
To say that any *one* scalper has a "corner" on all these tickets is
silly.
Scalpers make their money entirely from price discrimination.
In doing so, they provide the same beneficial service as any other
competitive retailer. (See my other post about that)
<snip>